Thursday, September 13, 2012

Romney's False Remarks about the Cairo Embassy Statement/Lottery Ticket Basket Table as of 9/12/12/NBN, SDIV/SOLD 100 ARCC at $17.54-IRAs in Two 50 Share Lots/Bought 50 TITN at $19.88/Sold 1 J.C. Penney 5.65% at 93.379

A study by Bloomberg found that Romney's plan for Medicaid would slash about $1.26 trillion from that program over nine years. It is not generally understood that almost one-third of Medicaid spending goes for long term home care for the elderly and disabled who have exhausted their savings. NYT Most people will not be able to pay for nursing home care, currently averaging about $250 a day, when they will need it.

It is not really surprising that large number of voters are unaware of this issue. Some voters mistakenly believe that Medicare pays for long term nursing care. Others, who may be receiving a $1,000 or so in monthly social security benefits, believe that the government is paying the nursing home bill by taking most, though not all, of that benefit to pay the nursing home costing over $7,500 a month. I discussed an example in an earlier post. (Introduction to 8/16/12 referring to a Bloomberg article discussing the impact of Ryan's budget on Medicaid and an opinion column by Maureen Dowd titled "When Cruelty Is Cute")

If the GOP is successful in slashing Medicaid by anywhere near the amount recommended by Romney and Ryan, large numbers of  middle class voters will soon learn a valuable lesson about Medicaid's benefits to them or to a member of their family, particularly their elderly parents.

Perhaps that lesson will be learned when Mom or Dad move in with the kids, in need of constant care, just like the old frontier days. Maybe all of the family will end up living in a pop tent under some bridge, sure that would be tight for a family of four with gramps and grandma in tow, but look at the benefits. Plenty of fresh air and sun, cooking thanksgiving dinner for the entire family just like the pilgrims, provided one of them knows how to set a rabbit trap and then to roast  the critter over an open pit fire.

There could easily be a certain amount of justice for those middle class voters supporting the GOP plans for Medicare and Medicaid.

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The U.S. Ambassador to Libya, Chris Stevens, and three others were killed in Libya who attacked the U.S. consulate in Benghazi. The attack included rockets fired into the compound. NYT

At about the same time, a mob was able to scale the walls at the U.S. Embassy in Cairo, unobstructed by Egypt's security forces, and succeeded in replacing the American flag with an Islamic banner. The attack in Libya appeared to be coordinated.

Both attacks were reportedly motivated by a film directed by an Israeli-American, Sam Bacile, titled the "Innocence of Muslims". Reuters reported that this individual may be using a pseudonym and he reportedly talked with a foreign accent.

The embassy in Cairo had issued a statement hours prior to the attack condemning the video in an effort to quell the protest. Romney issued a statement after the attack seeking to gain a political advantage by deliberately distorting the facts. He characterized the embassy statement as an Obama Administration effort to "sympathize with those who waged the attacks"  US News and World Report  He called the administration's "apology" disgusting.

Romney falsely claimed in a news conference that the statement made by the U.S. Embassy in Cairo occurred after the walls were breached by the mob. PolitiFact points out that the embassy statement was released before the mob formed in an effort to diffuse the situation. It was also false to characterize the statement as an apology for American values. FactCheck.org came to the same and inescapable conclusion.

This "apology" attack theme against Obama is one of Romney demonstrably false talking points, which produces cheers from the true believers. This theme has been given a "Pants on Fire" rating by PolitiFact which is common for this candidate. PolitiFact

FactCheck.org came to the same conclusion as Politfact.

Romney is a pathological liar and a loose cannon, a potentially dangerous combination for the U.S., and those statements have nothing to do with his political beliefs or his party affiliation. I would make the same statement about any politician that deserves to be characterized in that fashion.

Romney's statement was criticized by Peggy Noonan and was justifiably called a "craven" political move by Mark Halperin of TIME.com.

The ambassador to Egypt, who released the statement in question, is Anne W. Patterson, who served as George Bush's Assistant Secretary of State for Narcotics and Law Enforcement and was later appointed by George Bush as the U.S. ambassador to Pakistan. Obama appointed her to be ambassador to Egypt in 2011. She is a career foreign service officer.

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The Global X SuperDividend ETF (SDIV) told Barrons that it had jettisoned Business Development Corporations from its portfolio. As a result, this fund will no longer have to include the acquired BDC fund fees in SDIV's expense ratio. This has the effect of lowering the reported expense ratio to .58% from 1.14%. I view this action to be primarily a marketing ploy since many individual investors would simply look at the expense ratio for competitive funds and not make the mental adjustment for the fees charged by the BDCs rather than the ETF that owns the BDCs. Since BDCs are relatively high yielding securities, this elimination could adversely impact the firm's payout. This new ETF pays monthly dividends at a variable rate, based on the distributions received by the fund: Distributions I own 100 shares in the ROTH IRA, bought in two fifty share lots: Added 50 of the ETF SDIV at $20.43-Roth IRA;  Bought 50 SDIV at $22.33

A favorable article on Medtronic (owned) was published in Barrons. The stock has gained 25% or so during the past year and still sells at 11 times forward earnings with a 2.5% dividend yield. MDT: 41.65 -0.03 (-0.07%)

Northeast Bancorp (own) was the subject of a favorable article in yesterday's online edition of Barrons. This stock is selling below its tangible book value and has recently undergone a potentially rewarding, though risky, transformation as noted in this article. Bought 100 NBN at $8.7 (August 2012 Post). The stock received a pop yesterday: NBN: 8.78 +0.28 (+3.29%)

Sears Holdings recently issued to it shareholders a subscription right to buy shares in its Hometown and Outlet stores spin-off.  For each Sears share owned at the 9/7/12 close, the shareholder would receive one subscription right to purchase .2118091 shares of Sears Hometown at $15 per share. Yesterday, those subscription rights, which are transferable, started to trade under the symbol SHOSR: 2.12 +0.43 (+25.44%), with over 27M rights traded yesterday. This is a good omen for a successful rights offering. My sole interest is as a Sears bond owner. This offering will improve Sears liquidity with an infusion of several hundred million dollars in cash. Sears Holdings I own 4 Sears Senior Secured bonds maturing in 2018 which closed yesterday slightly above my sell target price. Bought 1 Sears Holding 6.625% Senior Secured Bond Maturing 10/15/2018 at 83.25 (9/7/11 Post); Bought 1 Sears Holding 6.625% Senior Secured Bond Maturing 2018 at 90.50-Roth IRA (May 2012 Post); ADDED 2 Sears Holding Senior Secured 6.625% Bonds Maturing 10/15/2018 at $89.75 (8/21/12 Post);

The average junk bond yield has fallen below 6.5% for the first time. I have switched from being a buyer to a seller of junk bonds. Some of my holdings are not liquid, particularly where I own just one bond. There are several positions that I would sell now, provided there was a buyer for a one bond lot close to the bid price for a 5 bond lot. In many cases, there are no buyers for a lot less than 5 bonds. Most of the bonds that I own could be sold readily in five bond or higher lots.

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The WSJ dividends page for today shows that the Wells Fargo Advantage Multi-Sector Income Fund will go ex dividend for its $.10 per share monthly dividend on Friday 9/14/12.

I own 550 shares, split between two accounts:

200 Shares ERC Roth IRA Unrealized Gain +$263 as of 9/12/12
I included the bond CEF GDO in that snapshot since I have the same issue with it.

The other 350 ERC shares are held in a taxable account:

350 ERC SHARES UNREALIZED GAIN AS OF 9/12/12=$375.85
As of 9/12/12, the net asset value per share was $16.97. Based on a closing price yesterday of $16.36, the discount to net asset value per share was -3.59%. It is borderline for me to keep this bond fund given the unrealized profit for all shares and the dividends already harvested to date. I have realized a profit by selling some shares:

2011 ERC Realized Gain 100 Shares=$244.8
There is something to be said about leaving the playing field while one is still ahead. After digesting the Federal Reserve's action today, I will assess further the appropriate action. Another factor is that I have taken a dislike toward Wells Fargo on another matter. Disgust is an appropriate word to describe my feeling. The Egregious Swap Termination Fee Paid to the GJN Swap Counterparty- Wells Fargo


1. Bought 50 TITN at $19.88 Last Monday ($500 to $1,000 Flyers Basket Strategy)(see Disclaimer): Normally, when a stock dives on a earnings report, I will wait several days at a minimum before considering purchase. Titan Machinery fell over 23% last Monday after a disappointing second quarter earnings report. My gut told me that decline was more than a sufficient drop under the circumstances which include two primary factors. First, I am not devoting much capital to the position and consequently can afford to shoulder more downside risk in return for the potential upside down the pike. Given the capital exposure, I can be patient. Second, the earnings shortfall was due to the U.S. drought, and the drought this year does not seem likely to be a recurring phenomenon. In other words, you would not value this company based on how a one year drought negatively impacted earnings. 

For those investors dumping the stock, you would think that droughts have become the new normal. As noted in an article published at Investopedia, there have been two U.S. droughts in the modern era, one of them lasted for two years (1988) and the other one for one year (1980). So predicting continuous droughts likely to negatively impact Titan's earnings for several years does not appear to be rational based on historical precedent. 

Titan Machinery, headquartered in West Fargo, North Dakota, owns and operates a network of "full service agricultural and construction equipment stores". Ninety-nine dealerships are in the U.S., primarily in the farm belt states. The company has been expanding into Romania and Bulgaria and has 12 dealerships in those two countries.  

This is a link to the earnings report that triggered the selloff last Monday: SEC Filed Press Release For Titan's 2013 second fiscal quarter, the company reported earnings of 25 cents per share, down from 30 cents in the year ago quarter, on $410.1M in revenues.  For the fiscal year ending in January 2013, the company reiterated its revenue guidance of $1.95 to $2.1 billion, but lowered its earnings guidance to $2.10 to $2.3. The previous guidance was $2.55 to $2.75. 

For this company, a small drop in the selling price of equipment can have a large impact on its bottom line.

Yesterday's close: TITN: 19.37 -0.29 (-1.48%) 

2. Sold 100 ARCC at $17.54 Last Monday-IRAs (see Disclaimer): I still own 100 shares of Ares Capital in two separate taxable accounts (50 share lots). I would consider adding more shares in that account when and if I can lower my total average cost per share which is currently $16.33:

50 ARCC Taxable Account Average Cost Per share = $16.33
Ares Capital is a Business Development Corporation which has a similar tax status to a REIT. Unlike regular "C" corporations which pay dividends to their shareholders, the BDC will avoid double taxation by paying out as dividends 90+% of its net income. That requirement can generate a nice dividend yield, at least when the BDC is earning money, but there are two major downsides that can be generally described as follows. BDCs loan money to risky borrowers, and the BDC will be continually selling stock to raise new capital. Those capital raises may not be in the best interest of stockholders, particularly when the sale is below net asset value per share, but will be in the interest of the BDC's managers who are paid based in part on the amount of assets under management. Consequently, in IRAs, I will generally hold a BDC for a relatively short period of time, and will sell the shares for any profit after collecting one or more dividends. 

The shares sold last Monday were bought in two 50 share lots, one 50 share lot each in the regular and Roth IRAs. I held those shares for more than one year and was able to exit the stock positions at a profit. The 50 shares in the ROTH IRA produced $90 in income on a total investment of $832.5 or 10.8%:

Roth IRA: ARCC Dividends on 50 Shares
With the profit on the shares, the total return would be about 13.81% over an 18 month holding period. That total return is viewed as more than satisfactory in the ROTH IRA. Item # 3 Bought 50 ARCC at $16.51-Roth IRA March 2011 

The total return was similar for the 50 shares bought in the Regular IRA over a 16 month time period.

ARCC was ex dividend yesterday for a $.38 per share dividend.

Yesterday's close: ARCC: 17.26 +0.01 (+0.06%)

3. SOLD 1 J.C. Penney 5.65% Senior Bond at 93.379 Maturing on 6/1/2020 Last Tuesday (Junk Bond Ladder Strategy)(see Disclaimer): I just clipped a small profit and some interest on this JCP bond bought last June:  Bought 1 J.C. Penny 5.65% Senior Bond Maturing 6/1/2020 at 87.898 It is far from clear that JCP's new strategy will actually work.

This bond matures in almost 8 years and has a relatively low coupon for a junk bond. With the narrowing of the discount to par value, those three factors, along with the uncertainty about JCP's strategy, were sufficient to trigger this sell.

FINRA Information on 2020 Bond

For the moment, I am keeping the 2017 bond due to its shorter maturity and higher coupon:  Bought 1 J.C. Penney 7.95% Senior Bond Maturing on 4/1/17 at Total Cost of $97.5 (see snapshot, price includes brokerage commission)

FINRA Information on 2017 Bond

4. Lottery Ticket Basket Table as of 9/12/2012: The Lottery Ticket strategy is explained in Lottery Ticket Basket Strategy, which has snapshots of the transactions,  and LOTTERY TICKET PURCHASES: LINKS IN ONE POST. There are two rules. A single purchase can not exceed $300 plus any previous realized gains from that security, and the total exposure at my cost can not exceed the realized gains. The realized gain total is currently $10,837.97.

Terex has been the best recent performer. Bought TEX at $14.43-LT Category (7/26/12 Post). TEX: 24.28 +1.31 (+5.70%) Forest City may be starting to break out to the upside.  Recent Lottery Ticket Transactions: Bought 30 HUN @ 9.91 and 30 FCE/A at 11.58 {FCE-A: 15.99 +0.20 (+1.27%)}


4 comments:

  1. Dear TennIndependent: THanks for linking to the SDIV blog item. Your view on the subject is most welcome -- would you mind sending me an email when you get your next distribution? I'm interested to know how much the removal of BDCs will crimp the yield. Sure sounds like you're on top of the subject. Rgds Brendan Conway e m a i l at brendan dot conway at barrons dot com.

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  2. Brendan: The dividend is variable on a month-to-month basis. I would not have a comparison until a year rolls around when I could compare the payment for May 2012 with May 2013 for example. The fund could probably give you this information.

    The elimination of BDCs would have to lower the yield some. Most of them are yielding anywhere from 8% to 12%. (e.g. PSEC, ARCC, TICC, all owned by me). Since the BDCs have risen since the fund purchased those securities, I would anticipate seeing some trading gains from selling them when the fund issues its next report.

    The Global X site lists the SDIV current 30 SEC day yield at 7.7% while the 12 month yield is shown at 7.81%. The BDCs would be included in the 12 month yield, but would probably not be included for the entire 30 day period.

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  3. Actually one of my Fidelity screens (yield >6%, B to B1,<2023) returned some 84 candidates today for the average yield of something like 7.4%, median around 6.5%. Presumably some of them make sense.

    True though, the trend is clearly downward for obvious reasons, Fed interest policy.

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  4. There has recently been some upward movement in virtually all high yielding dividend stocks that I own, including BDCs and Mortgage REITs. An article in tonight's Barrons highlights Mortgage REITs as a potential beneficiary of the Fed's action today. The author of that article mentioned the ETFs REM and MORT. I own 200 shares of REM. The author also mentioned NLY and MFA, which I own in small quantities in the Roth IRA. Mortgage REITs make me nervous, given their leverage and the way that they make money.

    Some of this uptrend in these high yield securities can in my opinion be attributed to individuals chasing yield. Since the Fed is now likely to continue its Jihad against the Savings Class until mid-2015, the tendency toward chasing yield may easily accelerate, ultimately causing a bubble to form in these securities.

    Coping with this abnormally low interest rate environment becomes more difficult by the day since income securities are being redeemed by the boatload, thereby requiring the investor to find less satisfactory alternatives for the proceeds, both in terms of risk and yield. I would feel a lot better about the Fed's Jihad if I could have back about 30 bonds which were redeemed by either the issuer or the owner of the call warrant (applicable for trust certificates)

    Mr. Conway from Barrons and I are discussing a particular ETF, SDIV, which chose to reduce its income level some by jettisoning BDCs.

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